The interface characteristics of the matrix and fibers significantly influence the evolution of residual stress in composite materials. In this study, we provide a methodology for reducing the residual stress in laminated composites by modifying the thermomechanical properties at the fiber–matrix interface. A hydrothermal chemical growth method was used to grow Zinc Oxide nanowires on the carbon fibers. We then utilized a novel digital image correlation approach to evaluate strains and residual stresses, in situ, throughout the autoclave curing of composites. We find that interface modification results in the reduction of residual stress and an increase in laminate strength and stiffness. Upon growing ZnO NWs on the carbon fibers, the maximum in situ in-plane strain components were reduced by approximately 55% and 31%, respectively, while the corresponding maximum residual stresses were decreased by 50.8% and 49.33% for the cross-play laminate [0°/90°] layup in the x and y directions, respectively. For the [45°/-45°] angle ply layup in the x-direction, the strain was decreased by 27.3%, and the maximum residual stress was reduced by 41.5%, whereas in the y-direction, the strain was decreased by 166.3%, and the maximum residual stress was reduced by 17.8%. Furthermore, mechanical testing revealed that the tensile strength for the [45°/-45°] and [0°/90°] laminates increased by 130% and 20%, respectively, with the interface modification.